Study Guide 1 - 1 Introduction to Economics (Ch. 1) 2...

1 Introduction to Economics (Ch. 1) 2  Scarcity: People face trade-offs because resources are limited. 3  Benefit-Cost: Choosing one alternative over another generates both costs and benefits. 4  Marginal Analysis: Rational people make “how much” decisions at the margin. 5  Incentive: People make decisions by comparing costs and benefits; they respond to incentives. 6  Production Possibilities Frontier: A simple economic model to deepen understanding of some of the basic principles developed this week. 7  KEY TERMS: opportunity cost, marginal cost, marginal benefit, factors of production 1 Competitive Market Model, Demand and Supply (Ch. 2) 2 Market System: The free determination of prices and the free exchange of goods and services characterize a market economy; normally markets are a good way to organize economic activity. 3  Demand Schedule: Shows the quantity demanded at each price and is represented graphically by a demand curve. 4  Demand Curve Shifts: A change in quantity demanded at any given price will cause the demand curve to either shift rightward or leftward. This is called either an increase or a decrease in demand. 5  Demand Shifters: Events or variables that cause the demand curve to shift. 6  Supply Schedule: Shows the quantity supplied at each price and is represented graphically by a supply curve. 7

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